Opalesque Industry Update - Institutional investors are bolstering their commitment to
hedge funds, but expect greater transparency and solid risk management
infrastructures from managers, according to an annual global study released today by
SEI (NASDAQ: SEIC) in collaboration with Greenwich Associates. The report, entitled
“Institutional Hedge Fund Investing Comes of Age: A New Perspective on the Road
Ahead” and available at
www.seic.com/2011HedgeResearch, indicates a
need for hedge fund managers to enhance their risk management infrastructure and
risk reporting, and institutionalise transparency policies to attract new capital,
satisfy anxious investors, and protect their reputations. The study also revealed
the importance of fund managers clearly articulating how their investment strategies
add value to investors’ portfolios, which presents an opportunity for managers to
differentiate themselves through market-leading client service, reporting, and
education.

The study results found that institutional investors’ confidence in hedge funds is
growing, as more than half (54 percent) of all survey respondents said they plan to
increase target allocations over the next 12 months. That confidence is conditional,
however, as the demand for increased transparency and risk management were recurring
themes throughout this year’s study. In fact, the focus on risk management
infrastructure emerged as the second most important hedge fund selection criteria
this year, with 75 percent of respondents deeming it “very important.” Notably, it
was not among the top ten selection factors in SEI’s report last year. Only clarity
of investment philosophy ranked higher than risk management, with 79 percent deeming
it “very important” – emphasising the growing demand among investors for
transparency and understandable investment strategies.

“The study confirms what we have been seeing and hearing from our clients – that
investors are committed to hedge funds, but managers must get and keep investors
comfortable with their investment decision,” said Phil Masterson, Managing Director
for SEI’s Investment Manager Services division. “Managers must differentiate
themselves through increased transparency, enhanced risk management, and reporting
as well as better overall client service to gain and retain assets post-financial
crisis and post-Madoff. We’ve been making investments in new technologies and
enhancing our services to help our clients do just that over the past 18 months and
we’ll continue to help them stay ahead of the curve.”

Transparency is still a concern, as more than two-thirds (70 percent) of those
polled pointed to a lack of transparency as their biggest worry, up from 56 percent
in 2009. As for the types of information sought, more than three out of four
respondents want risk analytics from managers – a category of information that
didn’t even appear in the top 10 last year. Liquidity remains top-of-mind as well,
as more than half (58 percent) of investors named liquidity risk their biggest worry
in hedge fund investing, with more than 40 percent saying they have taken steps to
enhance the liquidity of their hedge fund investments.

The report also noted that investors are not relying on regulation to improve hedge
fund disclosure, liquidity, or risk management. Nearly one-third (30 percent) of
respondents cite “limited regulation” as a primary concern of hedge fund investing.
As investors are proactively seeking to have their concerns addressed, managers are
responding.

”The hedge fund managers best equipped to compete prospectively will be those able
to clearly articulate their value proposition and source of alpha, as well as
demonstrate institutional-quality operations and risk management infrastructure,”
says Masterson.

The white paper is published by the SEI Knowledge Partnership, which provides
ongoing business intelligence and guidance to SEI’s investment manager clients.

(press release)

About SEI's Investment Manager Services Division
SEI's Investment Manager Services division provides comprehensive operational
outsourcing solutions to global investment managers focused on mutual funds, hedge
and private equity funds, exchange traded funds, collective trusts, and separately
managed, as well as institutional and private client, accounts. The division applies
operating services, technologies, and business and regulatory knowledge to each
client’s business objectives. Its resources enable clients to meet the demands of
the marketplace and sharpen business strategies by focusing on their core
competencies. The division has been recognised by HFMWeek as “Most Innovative Fund
Administrator (Over $30bn AUA)” and “Best Funds of Hedge Funds Administrator (Over
$30bn AUA).” For more information, visit
http://www.seic.com/enUK/investment-managers.htm.

About SEI
SEI (NASDAQ:SEIC) is a leading global provider of outsourced asset management,
investment processing and investment operations solutions. The company’s innovative
solutions help corporations, financial institutions, financial advisors, and
affluent families create and manage wealth. As of September 30, 2010, through its
subsidiaries and partnerships in which the company has a significant interest, SEI
administers $402 billion in mutual fund and pooled assets and manages $164 billion
in assets. SEI serves clients, conducts or is registered to conduct business and/or
operations, from numerous offices worldwide. For more information, visit
http://www.seic.com/enUK/index.htm.

About Greenwich Associates

Greenwich Associates provides research-based strategy management services for
financial professionals. Greenwich Associates’ studies provide benefits to the
buyers and sellers of financial services in the form of benchmark information on
best practices and market intelligence on overall trends. Based in Stamford,
Connecticut, with additional offices in London, Toronto, Tokyo, and Singapore, the
firm offers over 100 research-based consulting programs to more than 250 global
financial services companies. For more information on Greenwich Associates, please
visit www.greenwich.com. ...Corporate website: Source
KM